Monday, October 24, 2016

The typical politician does not oppose free trade because he took an advanced econ course and learned there that, under just the right combination of real-world circumstances, an optimally imposed tariff can be justified on economic grounds. No. The typical politician opposes free trade because he doesn’t understand the first thing about economics. (...)

The typical politician doesn’t support minimum-wage legislation because she has concluded, after careful study, that employers of low-skilled workers have sufficient amounts of monopsony power in the labor market (as well as monopoly power in their output markets) to nullify the prediction of basic supply-and-demand analysis and, instead, to create real-world conditions that enable a scientifically set minimum wage actually to improve the welfare of most low-skilled workers without reducing the employment prospects of any of them. No. She supports minimum-wage legislation because she believes that raising the minimum wage will result simply in all low-skilled workers getting the stipulated pay raise without any negative consequences befalling these workers.

2 comments:

«The claim that I see many people (mostly on the political left) making is something like the following: “Oh, principles of economics is too simplistic. Reality is so complex that, when one learns advanced economics, the policy prescriptions that a student takes from his or her principles course are typically shown to be faulty. Here are some examples. The Minimum wage: Econ principles show that it destroys jobs for low-skilled workers, but advanced economics shows that it can be good for those workers. FDA regulation: Econ principles show that it prevents consumers from gaining access to pharmaceuticals that can benefit consumers, but advanced economics shows that such regulation can be good for consumers. Workplace-safety regulation: Econ principles show that competition for workers obliges firms to supply optimal levels of safety, but advanced economics shows why this conclusion is mistaken.”

If claims such as these are generally true, then what is being taught as economic principles would be anti-principles. If claims such as these are generally true, then what is being taught as economic principles would be, at best, simplifications of reality so extreme that they misinform students rather than inform them. If claims such as these are generally true, then the typical econ-principles student should demand a refund of his or her tuition and compensation for being defrauded by his or her college.»